Foreign firms in China
jump to beat probes

Illustration: June Hsu

Foreign companies in China are getting increasingly jumpy about a spate of antitrust and corruption investigations by Chinese authorities, and are hiring lawyers to make sure their operations comply with the law.

The investigations represent one of the most significant risks to doing business in China in years. Antitrust regulators have looked into sectors such as pharmaceuticals, milk powder and jewelry in recent months and suggested that car makers, telecommunication, banks and oil firms could be next.

Corruption probes have targeted the pharmaceutical industry while authorities have also launched a major investigation into China’s leading oil and gas company.

One executive from a foreign-listed medical device maker said he cancelled his summer vacations plans and instead spent the past month crisscrossing China to make sure the company’s operations were not violating any Chinese laws.

Lawyers in China say client enquiries related to a five-year old anti-monopoly law — suddenly being enforced with zeal — have jumped, including requests for antitrust audits.

Reuters spoke to two dozen foreign executives, business consultants and lawyers. All the company executives declined to be identified for fear of attracting scrutiny from regulators.

Overall, they said they were still optimistic about doing business in China, where hundreds of millions of more consumers will join the middle class even as the economy looks set to grow this year at its slowest pace in 23 years.

While corruption investigations periodically make the headlines, the latest campaign appears to have more teeth than usual with Chinese President Xi Jinping (習近平), who took office in March, using the crackdown as a totem for his administration.

The biggest foreign firm in the spotlight is British drug maker GlaxoSmithKline (GSK), which Chinese police have accused of funneling up to 3 billion yuan (US$489.92 million) to travel agencies to facilitate bribes to doctors to boost the sale of its medicines. GSK has said some of its senior Chinese executives appeared to have broken the law.

The medical devices executive said he went to all his company’s offices in China and reviewed third-party sales agents to ensure no “gray zone” business was being done.

“Doing business in China comes with risks, such as bribery. We have to juggle this against our business target and that has become increasingly difficult after GSK,” he said, declining to be identified because of the sensitivity of the issue.

A veteran healthcare industry executive said his firm had increased the frequency of its internal audits.

“We have to make sure we see what’s underneath,” he said.

Seung Chong, a Hong Kong-based partner and regulatory expert at Orrick law firm, said enquiries from clients to get their codes of conduct up to US and EU standards were growing, especially with anti-corruption policies.

It is the antitrust investigations, however, that have really accelerated.

Reuters reported on Aug. 21 that an official from the Chinese National Development and Reform Commission (NDRC), which regulates prices, put pressure on about 30 foreign firms at a meeting in late July to confess to any antitrust violations.

In particular, authorities are paying attention to whether manufacturers are forcing retailers to set minimum prices for products, which would contravene the anti-monopoly law.